Markets & Finance

The Rothschild Empire Anoints an Heir

A portrait of grandfather Guy de Rothschild hangs in Alexandre's office

Alexandre de Rothschild says his father always told him to “do what you want—if you want to play tennis, go ahead.” Alexandre, now 32, did not devote his life to perfecting his serve, breeding horses, or the other pursuits one might imagine are available to a scion of the world’s biggest family-owned bank. Instead, he took jobs at other financial firms before joining the family business four years ago, becoming the seventh generation of a banking dynasty that can be traced to the 18th century.

Today, as the firm undergoes a generational shift to younger bankers, he’s being groomed to run Rothschild and succeed his 69-year-old father, David, within five years, according to three people with direct knowledge of the plan. “Whether it’s chairman, CEO, one, the other, both—it could take various forms and there’s no timing pressure,” says Alexandre. His father, David de Rothschild, isn’t worried about his readiness. “What I observe of Alexandre’s attitude and behavior and what colleagues tell me is very comforting,” he says. “But again, he’s not under pressure to be more visible or add titles. Things are progressing as they should.”

Anna Clopet/Corbis'Things are progressing as they should,' says David

The comments by David and Alexandre are the most explicit yet to spell out succession plans at Rothschild, a storied name in finance that reported revenue of €1.14 billion ($1.42 billion) last year and ranks 10th among banks worldwide in advising on deals, according to data compiled by Bloomberg. It advised Nestlé (NESN:VX), the world’s biggest foodmaker, on its $11.9 billion takeover of Pfizer’s (PFE) infant nutrition unit this year.

Alexandre’s presumed ascension is part of his father’s long-sought goal to establish a new corporate structure that cements control of the firm within the Rothschild family. The plan, approved by shareholders on June 8, converted Paris Orléans, the holding company for Rothschild operations in France, the U.K., and elsewhere, into a limited partnership. The family now has 56 percent of voting rights, though its ownership stake is 47 percent. About 38 percent of the group’s shares will be listed on the Paris exchange.

Combining operations gives Rothschild a central balance sheet where it can book fees from advising on mergers. That will enable the creation of a global profit statement—meaning less infighting over fees and more incentive to work together, according to co-Chief Executive Officer Olivier Pecoux. The consolidation further shifts the balance of power to Paris, where David and Alexandre are based, along with 150 of Rothschild’s 900 investment bankers. “They became very decentralized, and it’s a good thing this is happening,” says Niall Ferguson, a professor of history at Harvard, who wrote The House of Rothschild: The World’s Banker 1849-1999. The Rothschild business model, he adds, “will look more and more attractive as the age of global megabanks comes to an end.”

Like other banks, Rothschild has been rocked by the slowdown in deals. About 70 percent of its revenue comes from advising on takeovers, restructurings, and other transactions—and that revenue is down about 30 percent since 2007. Rothschild also oversees private equity investments. It doesn’t underwrite debt or equity or lend to companies. “The business is taking a lot of knocks from the economic climate, and there’s nothing to suggest it will change soon,” says Anis Bouayad, chairman of Strategie Alliance, which advises companies and banks.

Bouayad suggests Alexandre will need a strong team to succeed. “The key for their diversification as a family firm will be to bring the right people in alongside Alexandre,” he says. After graduating from the Ecole Supérieure du Commerce Extérieur outside Paris, Alexandre worked at Bear Stearns as an analyst in the mergers and acquisitions group for two years. He spent the next two years at Argan Capital, a European private equity firm that was spun off from Bank of America (BAC).

On joining Rothschild, Alexandre was charged with helping to set up and build the bank’s private equity unit. Thanks in part to his efforts, private equity revenue rose 37 percent last year to €78.5 million, just under 7 percent of the firm’s total. “In normal market conditions, someone at that age coming in with a view to taking over would have been ludicrous,” says Jason Kennedy, CEO of Kennedy Group, a recruiting firm. “But given the state of banking today, older doesn’t necessarily mean wiser.”

David, born in the U.S. after his parents fled the Nazis, has wanted to rebuild and protect the family firm ever since then-President François Mitterrand nationalized the French arm in 1982. David established a new French bank in the same year and in 2004 took managerial control of the U.K. side of the business after his cousin Evelyn de Rothschild retired. While under the same corporate umbrella, the group largely remained a collection of regional banks, sometimes leading to tension among bankers.

One point of contention arose this year with the Nestlé-Pfizer deal. Roths-child’s Paris bankers, who secured the deal, feel they should reap more of the fees than their U.S. colleagues, according to a banker at the firm. Co-CEO Pecoux denies any dispute and says none of the bankers have brought the issue to his attention.

For now, Marc-Olivier Laurent, a 19-year veteran of the bank who runs the private equity unit, is Alexandre’s boss. The two helped raise a €600 million fund in 2010 called Five Arrows Principal Investments, after the five sons of Mayer Amschel Rothschild, who sent them across Europe to set up banking activities in the 18th century. Alexandre is Rothschild’s great-great-great-great-grandson.

David is noncommittal on his own retirement plan. “I’m in good health and active at 69,” he says. “As soon as I feel I am declining, I don’t want to fall into a trap of wandering the halls where people are saying, ‘I wish he’d leave.’ Some days I say I’ll retire in seven years, other days three. Suffice to say, I won’t hang around longer than reasonable.”

Alexandre, who is married to Olivia Bordeaux-Groult and has three sisters, is the only family member with an operational role at the bank. His youth can be an asset. Using his friendship with John Elkann, 36, an heir to the Agnelli family of Italy, Alexandre got the family, which controls the Fiat (FI:IM) carmaking empire, to invest in Paris Orléans. When talking about succession, Alexandre is careful to state that his ascension would happen only with the backing of the bank’s top managers. “The last thing I want to do,” he says, “is impose myself as a leader and CEO just because I carry the name.”